You cannot compete with places like GoDaddy and Host Gator for hosting on price. It's just not realistic.
You would need to find a market niche like:
- Heroku - Ruby on Rails hosting
- Engine Yard - Ruby on Rails hosting
- Phpwebhosting.com - Early PHP focus
- PowerDNN.com - Focus on hosting DotNetNuke CMS
- ihostasp.net - ASP .Net hosting
Hosting really isn't just turn a computer on setup some FTP accounts and let it rip. You have at a minimum to worry about:
- Power (real hosting companies have battery & generator backup)
- Connectivity (need multiple sources of highspeed internet)
- Disaster recovery (must have offsite backups if trying to do it from your home)
- Hardware (drives, ram, motherboards) on hand incase of failures
I wouldn't even consider hosting from a residential location. Buy a dedicated or co-locate a server at a local facility. Some place like LiquidWeb.com or RackSpace.com
Then you have to think about:
- Marketing - where will you get customers
- Signing them up
- Online credit card collection
- Recurring billing (could use recurly.com)
- Provisioning their accounts
- Control panels (cpanel / plesk etc.)
- Many IP addresses available for clients who want SSL certificates
- DNS servers
But if you want to host some friends and family on a machine in your basement go for it! That is no big deal but it would be irresponsible for you to sell it as business grade.
Best bet is to carve out a niche and specialize in hosting a specific programming platform, or open source project. Like Redmine hosting, or knowledge tree hosting, or name 1 of a million popular open source products out there. At this point in the game you need a niche.